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Russia’s Novatek is not afraid of competition with US on European LNG market

March 22, 2016, 14:42 UTC+3 MOSCOW

Earlier it was reported that the US Cheniere Energy Inc. loaded the first US gas export supply ever

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© Alexandr Semyonov/ITAR-TASS

MOSCOW, March 22. /TASS/. Russia’s largest independent gas producer Novatek is not afraid of competition with the United States on the European market of liquefied natural gas (LNG), because the cost of LNG production in Russia is quite low, head of the company Leonid Mikhelson said in an interview with the Rossiya 24 YV channel.

"We don’t. I think we are very competitive," - he said, answering the question about the competition.

According to him, the Yamal LNG project will break even under most pessimistic forecasts, as the cost of LNG production in Russia is quite low. He noted that the product by Yamal LNG will be competitive on almost all markets.

Yamal LNG is the project of building a liquefied natural gas plant construction project with the annual capacity of 16.5 mln tonnes on the resource base of Yuzhno-Tambeiskoe field in Russia’s Arctic region. LNG production start is scheduled in 2017.

Novatek holds 50.1% in the project. China’s CNPC holds 29.9%, while French Total owns 20%.Earlier it was reported that the US Cheniere Energy Inc. loaded the first LNG tanker at its Sabine Pass terminal in Louisiana. The tanker became US’ first gas export supply ever.

According to Bloomberg data sources, the recipient is Brazil's state energy company Petroleo Brasileiro SA.

Increase of LNG share on market can unpeg gas prices from oil prices

According to Mikhelson, increasing the share of liquefied natural gas (LNG) on the market may contribute to the formation of price of it without pegging to the price of oil.

"There is a small increase in gas consumption in the world. A large share of this growth is provided by the growth of the LNG market. I think the bigger volume of LNG on the market is, without a peg to pipeline gas, the more likely is that a new benchmark will emerge that will be almost unpegged to oil prices" - Mikhelson said.

Novatek suggests buying 2-3 bcm of gas from Gazprom for its consumers in Europe

The official also pointed out that Novatek is discussing with Gazprom Export the purchase of 2-3 billion cubic meters of gas for its customers in Europe, which would increase the share of Russian gas on the market.

"We have proposed and are discussing a possibility of buying gas from Gazexport for substitution of gas that we buy on the European market for our customers," - Mikhelson said.

According to him, it will give a little growth in income under current low prices and increase the share of Russian gas on the European market.

Mikhelson said that so far it concerns small volumes of gas - "2-3 billion cubic meters".

Novatek is happy with its share on Russian market,

According to the CEO, Novatek plans to maintain gas production and share of domestic supplies at the current level.

"Today we account for about 9-10% of Russian gas production and about 20% of domestic gas supplies. I think it's a sufficient share of the Novatek and we will maintain it," the official said.

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